A manufacturer of luxury watches sent spies into a Toronto jewelry store as part of a scheme to fix retail prices, a court was told yesterday.

In a statement submitted to District Court Judge Stephen Borins, federal prosecutor David Littlefield said Les Must de Cartier Canada Inc. cut off supplies of new watches to Oliver Jewellers and insisted on the store submitting its proposed advertising for approval.

The statement was filed with the court after Sheila Block, the lawyer representing Cartier, entered pleas of not guilty to two charges under the Competition Act involving alleged price-fixing between 1982 and 1986.

The store’s problems with Cartier began after it ran a series of advertisements in The Globe and Mail announcing that all of its stock, including Les Must de Cartier, was on sale for 10 days at 50 per cent off.

Mr. Littlefield said Mr. Djaoui told Barbara Oliver that she could not have any watches until the ads were pulled. Mrs. Oliver responded by removing the Cartier name from the ads.

Mr. Littlefield said evidence will show that Cartier’s interest in its products’ marketing extended to the company exercising ”omplete control”over the advertising in exchange for paying part of the cost.

The prosecutor said that when Mrs. Oliver and her husband, Russell, went to Mr. Djaoui’s office in May, 1982, they were told they would get no more Cartier products until they signed an agreement to submit all advertising involving the Cartier name to the firm for approval, ostensibly to protect the company’s trademark interests.

In 1985, when the jeweler had difficulty getting a steady supply of Cartier’s Panthere watches, Mr. Djaoui said he was still concerned about the store’s pricing policies and admitted he had sent spies to the store.

”hese spies reported back to him about Oliver’s big discounts on the Panthere line,”Mr. Littlefield said, adding, ”n internal memo to Djaoui from March 1, 1985, confirmed that Djaoui had someone secretly shop the Oliver’s store to monitor its prices.” Mr. Oliver complained to the federal Department of Consumer and Corporate Affairs, which advised him to try to tape record one of his telephone calls to Mr. Djaoui.

The prosecutor said a transcript of a call made shortly afterward shows that Mr. Djaoui’s message ”as very clear.

The accused would not tolerate any sale advertising that used Cartier’s name.” The trial continues today.